On certification to the Superior Court, Appellate Division, whose opinion is reported at 171 N.J. Super. 67 (1979).
For reversal and remandment -- Chief Justice Wilentz and Justices Sullivan, Pashman, Schreiber, Handler and Pollock. For affirmance -- None. The opinion of the Court was delivered by Sullivan, J.
[85 NJ Page 354] This appeal involves a class action by 162 low income homeowners against Security Consumer Discount Company (Security) and its successors in interest.*fn1 Plaintiffs seek to have certain
secondary mortgage loans issued by Security declared void and unenforceable*fn2 as executed in violation of the Secondary Mortgage Loan Act, N.J.S.A. 17:11A-34 et seq.
In 1968, Security, a Pennsylvania corporation, obtained a license to engage in the secondary mortgage loan business in New Jersey. Leonard Moonblatt, Security's director, secretary-treasurer and joint owner, met with Robert Huber who was then owner and operator of Robert Huber Associates, Inc. (a secondary mortgage licensee in New Jersey from 1966 to 1970) with regard to establishing an office in Camden, New Jersey. Huber subsequently agreed to rent Security a one-room office from his business suite in Camden and to serve as Security's representative. Security paid Huber $50 per month for the office and an additional $100 per month for secretarial services provided by one of Huber's employees. In October 1971, having obtained another New Jersey license, Security opened an office on the premises of Louis Malatesta, a home repair contractor in Millville, New Jersey. Malatesta provided this office space free of charge, apparently because much of the financing of Malatesta's home repair contracts came from second mortgage loans issued by Security.
All of the second mortgage loans in question were issued by Security to cover the costs of home improvements and repairs performed by Louis Malatesta. Malatesta and Huber were parties to an agreement whereby Malatesta would solicit home improvement and repair contracts from homeowners and Huber would arrange secondary mortgage financing through Security. In the typical case, Malatesta or his salesman would contact a
homeowner to discuss the need for home improvements or repairs. After the homeowner agreed to have work done, Malatesta discussed costs and financing and obtained credit information from the prospective customer. This information was forwarded to Huber who would prepare the mortgage applications and send them to Leonard Moonblatt's Philadelphia office for approval. When an application was approved, Moonblatt would turn the application back over to Huber to process and, ultimately, to execute the secondary mortgage loan.
Moonblatt had retained Anthony Cavuto, a New Jersey and Pennsylvania attorney, to prepare the necessary legal documents for the mortgage transactions. Under a special agreement with Cavuto, however, Huber in fact prepared the documents required by the Act. Cavuto then reviewed the forms to insure that they were properly prepared. Pursuant to an understanding with Moonblatt, Cavuto billed each loan applicant $235 for his services. From this fee, he paid Huber a flat $100 for the closing plus $15 per hour for Huber's other "paralegal" work.*fn3
Malatesta presided over the closings, most of which took place at Security's Millville office. The record contains several references to alleged irregularities in the closing procedures. For instance, several of the representative plaintiffs testified that Malatesta induced them to sign "closing" documents, required by the Secondary Mortgage Loan Act, without explaining to them the contents of the documents. One of the documents which Malatesta had them sign was a written statement attesting that the borrower was unable to obtain acceptable financing from the holder of every other existing mortgage on the property. Although each plaintiff dutifully signed the statement, several of them testified that the document was not explained to them.
Also admitted into evidence at trial were copies of testimony given by Malatesta before the Department of Banking during a 1974 investigation into Security's activities.*fn4 Malatesta testified before the Department that, at Huber's instruction, he created and recorded fictitious first mortgages in situations where none existed, so that Huber could process a Security secondary mortgage loan on the property. A prerequisite of secondary mortgage financing under the Act is the existence of a first mortgage on the subject property.*fn5
Malatesta's 1974 testimony also revealed the existence of a "kickback" scheme between Malatesta and Huber with regard to all 162 loan transactions in question. Malatesta admitted to the Department of Banking that he paid Robert Huber a 15% kickback on every secondary mortgage loan arranged through Security. These payments purportedly totaled some $81,000 in cash. Malatesta, however, denied adding the cost of the ...